Scholz’s master plan for Africa to bypass the EU’s CO2-tariff

German Chancellor Olaf Scholz had along his climate club again at the EU-African Union summit, this time to possibly bypass a C02-border levy. [EPA-EFE/GEERT VANDEN WIJNGAERT / POOL]

German Chancellor Olaf Scholz wants to address Africa’s concerns about the upcoming Carbon Border Adjustment Mechanism (CBAM) at the EU’s external borders by bringing the continent into his so-called “climate club”. EURACTIV Germany reports.

Last week’s EU-African Union summit, where EU heads of government met again with their African counterparts was the opportunity for Scholz to showcase his climate club.

“As the current G7 Chair, I have particularly advocated that our African partners also decide in favour of an open climate club and want to participate in it,” Scholz said during his press conference at the end of the summit on 18 February.

Scholz has long advocated for a climate club to gently persuade the rest of the world to participate in climate protection. Through economic incentives and without major distortions, third countries are to be persuaded to participate in climate protection.

After all, the EU’s goal of establishing a CO2 border tariff so that domestic companies can finally compete without allocating free emission certificates from the European Emissions Trading Scheme (EU ETS) is likely to upset some countries.

However, French President Emmanuel Macron has made CBAM a priority of his country’s EU Council presidency.

According to the proposal, as part of the pilot phase-in scheduled for 2025, CO2-intensive products from third countries are to be taxed at the same level as those produced in the EU. The proposal envisages “tariffs” on steel, iron, cement, fertiliser, aluminium and electricity.

However, Europe’s industry prefers the free allocation of emission certificates, third countries fear the loss of an important export market and so far no one knows how export goods will continue being competitive.

Complaints to the World Trade Organisation (WTO) will likely be forthcoming.

The only question is who will lead the legal action. Russia, China, Ukraine, Turkey and India will be most affected. But African heads of state are also anxiously awaiting the CBAM because exports and thus the economies of many African countries could be severely affected by the novel carbon levy.

Mozambique’s GDP, for example, would drop by about 1.5% due to the tariffs on aluminium exports alone, according to the Center for Global Development. Mauritania and Senegal would not escape unscathed either, the think-tank warns.

Berlin throws a lifeline

According to government sources, Germany is aware of the concerns raised by African countries. Additionally, they are aware of problems beyond Africa, for example, within the G20.

For this very reason, Berlin has so far always been “trying to keep the discussions on climate clubs and CBAM inline” in Brussels, explains a high-ranking representative of the German government.

“Our argument is always that we can only accept CBAM if we simultaneously show the way to largely do without ‘border adjustments’ within a climate club”.

Brussels has long been aware of this, as Patrick Graichen, State Secretary in the Federal Ministry of Economics and Climate Protection already stated this position at a ministerial meeting in December.

Instead, Berlin is now concerned about the concerns of other countries and those of its own economy. “We are concerned about retaliatory measures, for example, on the part of the USA or China,” the federatio of German Industries (BDI) said on 13 January.

According to the German government, there is no reason why a possible climate club of the “ambitious, bold and cooperative”(Scholz’s ABC of the climate club) should not be extended to Africa and beyond.

The bigger the climate club becomes, the fewer countries would have to introduce a rigid CO2 tariff. “If everyone agrees on common rules, there is absolutely no reason why the European Union should be the border of the CBAM”.

Therefore, the climate club would remove the concerns of countries fearing the introduction of a trade-disrupting CO2 border levy. The German chancellor thus seems determined to continue leveraging Germany’s G7 presidency for this purpose.

However, whether a weakening of the CBAM club will contribute to the EU’s climate goals is open to question. It is clear that a climate club alone will not be enough, according to the think tank Agora Energiewende. However, CBAM is an excellent means of exerting pressure.

Scholz walks EU tightrope in push for 'international climate club'

German Chancellor Olaf Scholz has championed the creation of a “climate club” bringing together large economies pushing for more ambitious climate action. But as the EU pushes for a carbon tariff at its border, he is walking a diplomatic tightrope.

[Edited by Alice Taylor, Daniel Eck]

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